Owning or running a sports team is everyone’s dream. Few people get to do it. So what’s it like to be an owner? Ken Kendrick, owner of the Arizona Diamondbacks; Tom Werner, an owner of the Boston Red Sox; and Tom Garfinkel, president and chief operating officer of the San Diego Padres; recount their experiences, talk about lessons learned, and explain why they’re still passionate about sports.
Diamondback’s Ken Kendrick Offers a Primer
Earl G. “Ken” Kendrick, principal owner and managing general partner of the Arizona Diamondbacks baseball team, is no George Steinbrenner, and Kendrick is fine with that. In his prime, the outspoken, media-centric Steinbrenner became as synonymous with his team’s brand as an owner could be. He relished his role as “The Boss,” and his brash style became a trademark of the New York Yankees.
Kendrick, 67, a self-made multimillionaire and philanthropist, doesn’t shun the limelight, but he hardly seeks it. With his humble West Virginia roots, his business acumen came with a hardscrabble edge, and he learned early on how to translate hard work and insight into long-term success. He earned his riches as a pioneer in the software industry and is a relative newcomer to the frenetic and brightly illuminated world of sports ownership. As principal owner for not quite a decade, Kendrick has learned about the benefits and the liabilities of being part of a small but highly scrutinized fraternity.
Kendrick understands that his Diamondbacks, a franchise that didn’t come into existence until 1998, shoulders a load of challenges that a powerful global brand like the Yankees doesn’t face. Without a $200 million player payroll or a roster of high-paid superstars, the Diamondbacks are a mid-market team fighting to be consistently successful on the field and build a sustainable brand and a fervent fan base. It requires a different set of leadership skills, and unlike other owners like Jerry Jones, of the Dallas Cowboys football team, or Mark Cuban, of the Dallas Mavericks basketball team, Kendrick is content to find and hire the best people to run the franchise and remain in the background. Which doesn’t mean he is a silent partner; far from it.
Before an early-season afternoon game against the Philadelphia Phillies, Kendrick led a small group of guests on a tour of Chase Field, the Diamondbacks’ glistening downtown stadium. Built in 1998 for the new franchise, Chase Field had the first retractable stadium roof in the U.S. On this brutally hot April day, the roof is closed for the game. Making his way through the team’s locker room, Kendrick is greeted warmly by infielders Paul Goldschmidt and John McDonald and injured star outfielder Chris Young. Out on the pristine diamond, posing for a photographer, Kendrick hoists a bat onto his shoulder and beams like a 12-year-old who is elated at possessing his own field of dreams. He has come a long way from the tiny southern West Virginia coal-mining town of Princeton, where he wrote in a friend’s high school yearbook that someday he planned to own a baseball team.
A lifelong baseball fan (he and his father rooted hard for the Cincinnati Reds and took long rides to Ohio to see an occasional game), Kendrick was a so-so athlete who channeled his love of the sport into card collecting. Unlike most red-blooded American males whose mothers irreverently discarded beloved baseball card collections when their sons left home after high school, Kendrick likes to tell people, “I had one of those rare moms who didn’t throw away my baseball cards and I still have them.” He continued to pursue his passion and today has one of the most valuable baseball card collections in the world. In 2007, he ponied up $2.8 million for an original 1909 Honus Wagner card and is so proud of this Mona Lisa of memorabilia that he hands out tiny replicas to new acquaintances.
Before the game begins, Kendrick takes his guests on a stroll outside the stadium to a once-moribund section of downtown Phoenix. His pride is palpable as he ignores the stifling Arizona heat and points out the new structures that he helped developed to revitalize this prized part of the downtown. The once-seedy section is now a sprawling collection of hotels, restaurants, shopping centers, theaters and outdoor malls. Beyond his deep affection for his adopted city, Kendrick understands that the Diamondback brand is inextricably tied to its visible role in the city’s growth and development. Kendrick, with abundant Southern charm, is a recognizable figure in his Sedona red Diamondback polo shirt, and fans on their way to the ballpark stop to shake his hand, call his name or point him out as the team’s owner.
Kendrick’s tenure has not been a joyride. Early on, he earned a reputation as an executive more focused on the bottom line than the team’s performance. He had the unenviable task of taking over the principal owner’s role from Jerry Colangelo, the team’s founder and a beloved sports legend in Greater Phoenix. Tension between the two, now resolved, didn’t enhance Kendrick’s profile in the community.
But Kendrick is tenacious and unbowed. At the game, despite the D’Backs’ lackluster performance, Ken-drick is animated and optimistic. He confers with team CEO Derrick Hall throughout the game and chats amicably with a stadium usher who is retiring after the game. The usher has been in his job since the D’Backs began play, and Kendrick quietly seeks him out after the game, thanks him, slips him an envelope with a gift, and gives him a warm embrace. It is a simple gesture, but it speaks volumes about Kendrick’s leadership style.
Kendrick graduated from West Virginia University in 1965, and rather than going to law school took a sales job with IBM. “One of the great blessings of my life was getting hired by IBM,” Kendrick says. “That one year of sales training at IBM was probably the best education I got. They taught me about business and gave me a grounding I didn’t have before.”
After just three years, Kendrick succumbed to an entrepreneurial bug, a desire to have his own business that he got from his father, a small-town businessman who owned a gas station and later a men’s clothing store where Kendrick worked. “My father is really a hero for me,” he said. “Emulating him and having my own business was something I had always hoped I could do.”
In the late 1960s, with $100,000 in seed money, he and a partner started Datatel, a company that sold infrastructure software to colleges and universities. It dominated the nascent higher education software market. “We were a software company before the word was coined,” Kendrick says. He ran the northern Virginia-based Datatel until 1990, when he stepped down from the CEO role and decided to shift gears and move to Arizona. Settling in the tony suburbs of Phoenix, he was offered a chance to own a minority stake in the Suns, the local N.B.A. franchise. His involvement with the Suns, which was considered a model basketball franchise run by Colangelo, put Kendrick at the center of the city’s sports scene. In 1995, when Major League Baseball announced plans to expand in the 1998 season, Ken-drick became a charter member of the ownership team that won a franchise for Phoenix. Colangelo was the primary founder and principal owner.
Kendrick served as a limited partner from the team’s inception in 1998 through its 2001 season when it upset the mighty Yankees to win the World Series, a stunning achievement for such a young franchise. With an inviting stadium and 3.2 million fans pouring through the turnstiles, the D’Backs seemed like the ideal expansion team. But all was not well behind the scenes. The on-field success was masking serious money problems, and though Kendrick won’t provide details, local reports described a team on the brink of financial ruin. One insider said Colangelo, the managing partner, had miscalculated the market and the team’s revenue-generation capacity. Overspending had put the team on the verge of bankruptcy, and a couple of bad seasons, with attendance plummeting, forced a change in leadership. The team had lost $350 million in its first seven years of existence.
Out of the background, Kendrick emerged in 2004 to take control as managing partner. He set out to recapitalize the team and change the culture of the business. Kendrick’s remedy was to raise the franchise value by finding ways to increase revenue while keeping cash flow in check. “In baseball, you want to try to build a model around a break-even cash flow,” Kendrick explained. “You build an expense base in terms of primary expenses such as payroll, minor league operations, baseball operations, scouting. You want to build a model, and we have done that consistently, where we are cash-flow neutral in our operations. And then you presume – over time – franchise values will increase, and the return on investment is built around increased franchise values.”
And in a league where the Los Angeles Dodgers, a division rival of the Diamondbacks, was sold in 2012 for more than $2 billion, the franchise value in Phoenix has soared. Based on recent franchise sales, such as the Texas Rangers and the Chicago Cubs, the Diamondbacks are worth $600 million to $750 million. Given that the original franchise fee in 1998 was $125 million, that’s a hefty ROI. Of course, that original sale price is inflated by years of serious financial losses.
But unlike old-line franchises such as the Boston Red Sox, Cubs, St. Louis Cardinals and the Yankees, the Diamondbacks face a different set of challenges. Phoenix is a city of transplants, and its population is made up of baseball fans who arrive with long-held allegiances to other teams. Converting them to Diamondback Nation is no simple task. Despite five division titles and a World Series championship in the previous decade, the Diamondbacks, like other relatively young sports franchises, must confront a “What have you done for me lately?” attitude with each new season. Kendrick accepts the challenge with the ardor of a baseball fan and a businessman who is unaccustomed to failure.
Not worrying about the credit
“My belief is that a good leader needs to understand that it’s not about him,” Kendrick says when discussing the trials of ownership. “You’ve got to live that. I didn’t coin this phrase, but it is something I believe in deeply: there’s no limit to what you can accomplish as long as you’re not concerned about who gets the credit.”
For Kendrick, attention must be paid to choosing the best candidate for every key position in the organization, from field manager to CEO. “It’s about picking the very best people and giving them both the responsibility and authority that goes with their job,” he said. “And we have to make it clear that they’re going to be held accountable.”
What’s different with a major sports franchise is the visibility of ownership, Kendrick says. Being visible and active in the community is essential for the owner and the organization. Under Kendrick, the Diamondbacks have built numerous community outreach programs.
“You have to make it more than the game on the field,” he says. “You want to add to the game on the field by how you appeal to the community with your brand. A good amount of that is being a good citizen.”
Though the franchise is in the 18th-largest market out of 30 teams, the Diamondbacks are second or third in community giving among all teams. Along with the usual corporate sponsorships doing good works, the team has built more than 30 high-quality Little League fields around Greater Phoenix. The Diamondback Foundation sponsors an annual Evening on the Diamond charity event, which this year raised $1.7 million. Kendrick points out that the team underwrites all expenses so that 100 percent of donations go to the charities.
But visibility also means exposure and accountability. Kendrick learned a painful lesson early in his Diamondback tenure. In 2004, after the team finished a dismal 51-111 season, deep in last place, Kendrick in his new role as majority owner spearheaded a change in managers. The team, which had won the World Series just three seasons earlier, had imploded. After interviewing several candidates, Kendrick and his management team chose Wally Backman, a former New York Mets infielder and a well-known firebrand. “We’d had an easy-going kind of management and felt that we needed a strong disciplinarian, a take-no-prisoners kind of leader,” Kendrick says. “So we chose Wally.”
After the appointment was announced, The New York Times reported on Backman’s sordid past, which included domestic violence charges and DUI arrests. A couple of the cases were still pending when Backman was hired. The Diamondbacks had not done a background check on Backman, and his legal troubles had flown under the radar. Kendrick, thoroughly embarrassed but determined not to allow the situation to grow worse, fired Backman four days after he was hired, setting a record for the shortest managerial tenure in baseball. It was a good example of just how decisive and quick Kendrick could be, when the stakes warranted it.
“There was a lot of embarrassment, but it was also a great learning experience,” Kendrick says. “One thing a good leader is able to do is admit he made a mistake and to correct it.”
Kendrick had not sought the top ownership position — it had fallen to him under difficult circumstances. From the outset, his goal was to not be the CEO. “I’ve worked real hard in my career to get to a place where I wasn’t going to be CEO, where I would be the guy mentoring that person and helping him become an effective day-to-day leader. When I ran Datatel, and the same is true here, I believed that it is crucial to get the right person who can do more than you can do. My great pride in my personal business history is to feel that I chose someone who could take the company to greater heights than I could.”
Indeed, Kendrick leaves Phoenix by Memorial Day each season to spend the summer at his home in Colorado. He has full confidence in Derrick Hall, the club’s CEO, to run the operations, but he also maintains daily contact through phone calls, email and texting. He makes it clear that no one considers him an absentee owner.
“Derrick presents an incredible image for our team,” Kendrick says. “He is well respected, well known in baseball even though he is a young man; he has had a long baseball career. He’s just 43, but he started young and is a very respected guy.”
Kendrick has a clear sense of the foundation of ef-fective leadership. He says a good leader is not born but evolves over a lifetime of experience in high-level roles. “An exercise in leadership is understanding yourself and having an air of objectivity about who you are and who you aren’t,” he says.
With his stentorian voice and piercing eyes, Ken-drick is no shrinking violet, but he embraces humility, an attribute of leadership in short supply among most sports franchise owners.
“We all have a lot to be humble about, and we should recognize it,” he says. “I feel fortunate to be where I am. I recognize that I’ve had some skill to get to some of the places I’ve gotten to, but humility is a vital quality that nobody has enough of.”
Real leaders get results
For Kendrick, the mark of a great leader is results. Building the Diamondbacks into a consistently successful franchise is an ongoing challenge. The team won 65 games in 2010 and then bounced back in 2011 to win 94 games under fiery manager Kirk Gibson and finish first in the highly competitive National League West division. A rebranding of the team has been under way for several seasons, including the controversial decision to change the team’s colors from purple and teal to Sedona red. Along with Gibson, the team brought in a new general manager, Kevin Towers, a respected former Padres executive, to run baseball operations.
Being in the bottom third of Major League payrolls — with a 2012 payroll of about $80 million — the Diamondbacks face challenges similar to those confronting Tampa Bay, San Diego and Minnesota, among other mid-market teams. But Kendrick refuses to embrace excuses built upon the notion of competitive disadvantage. He pointed out that an array of teams have won championships since 2000, including the Yankees, Diamondbacks, Phillies, Cardinals, Red Sox, Tigers and White Sox. The idea that only the powerhouses win the Series is simply untrue.
“Is it easier to make the playoffs with a $200 million payroll than a $60 million payroll? Of course,” Kendrick says. “But those of us in the sport really love the challenge of competing and kicking the butts of some of the high-profile teams. We can’t afford to make the mistakes that some of the clubs with money can make. The Yankees have made a lot of very bad decisions, but they can hide them. Our bad decisions or significant injuries are much more pronounced. There is less margin of error. But I embrace it. We start every season believing we have a very reasonable chance to win the World Series. Are the odds against us? Of course they are. But the odds are against everybody.”
Red Sox’ Tom Werner
“It’s All About the Fans”
Tom Werner, a television producer with credits such as “The Cosby Show,” “Roseanne” and “That ’70s Show,” is the chairman and co-owner of the Boston Red Sox, the Liverpool Football Club in England and the Roush Fenway NASCAR team. Before acquiring the Boston Red Sox, Werner was principal owner of the San Diego Padres. Along with his partners, John Henry and Larry Lucchino, Werner purchased the Red Sox in 2002 for $660 million. He also bought 84 years without a World Series championship. But under the new ownership, the Red Sox finally broke through and won the World Series in 2004 and then again in 2007. Under their stewardship, Werner and his colleagues remade the franchise, the venerable century-old stadium Fenway Park and the culture of the team. By putting a consistently high-level, competitive team on the field, the Red Sox have sold out more than 700 straight home games over the past decade.
How do you define leadership in the context of Major League Baseball?
Werner: If you want to win consistently, you need the best players on and off the field. That’s also true in business. There is a direct correlation between our success and the strength of our senior leadership team, which is comprised of an unbelievably talented group of individuals, all at the top of their respective fields. That is why we always strive to hire the best and brightest candidate for each key position. Then, we provide them with the tools and resources required to win.
The opening of JetBlue Park, our spring training complex in Fort Myers, Fla., exemplifies the vision of our Red Sox leadership team – particularly our CEO Larry Lucchino, COO Sam Kennedy and EVP of Business Operations Jonathan Gilula – to ensure we arm the team with the best possible tools and resources necessary to contend for a championship year in and year out. This state-of-the-art training facility has all the latest technology, amenities and features that will provide our team with a competitive advantage, and we’re confident that the park will become a destination for our fans and the Lee County community.
A true leader learns from past experiences and applies those lessons. John Henry is a better owner in Boston with the Red Sox because of his experience with the Florida Marlins, Larry Lucchino is a better owner with the Red Sox because of his experiences with Baltimore and San Diego, and I am a better owner in Boston because of my experience with the Padres. I also think that John and I are both better owners of Liverpool because of all of our prior ownership experiences.
The Red Sox are a unique brand in sports, with a deeply loyal, widely dispersed fan base. Where does growth and profitability come from under these conditions?
Werner: Our philosophy is “Invest to win.” We invest in sport to build winning teams on the field, pitch, track and court. Our mission is to develop perennial contenders; it’s imperative that we maximize revenue streams so we can generate the resources that enable us to reinvest in our teams and assemble the best talent available, whether it’s new players for the Red Sox and Liverpool FC or top NASCAR drivers. We also need to balance how we market with our commitment to remaining true to each team’s core brand attributes.
We created Fenway Sports Management, the global sales arm of Fenway Sports Group, which specializes in sports sponsorship sales and brand-management consulting, to harness global fan affinity for Fenway Sports Group teams.
F.S.M.’s strategy is to aggressively explore global business opportunities that drive revenue growth for all of the powerful clubs and brands in the Fenway Sports Group family. A key component of F.S.M.’s global business approach is to leverage the combined power of these brands in emerging international markets, thereby offering each property opportunities, visibility and reach they wouldn’t realize alone. That was the impetus behind our partnership with LeBron James — very few athletes can match LeBron James’ global reach, appeal and iconic status, and representing these iconic worldwide brands enables F.S.M. to open doors to unique and innovative sponsorship and revenue opportunities in the U.S., Europe, Asia and Latin America.
Last September’s Red Sox collapse set off a series of events for the franchise, and it seems as if the smooth ride that characterized the ownership up to then has been thrust into question. Given that businesses typically experience up and down cycles, like sine waves, how does this differ from other business organizations outside sports?
Werner: Sports and business are very similar. To succeed at either, it really all comes down to winning — whether on the field, in the boardroom or at the box office.
In sports, you’re on top of the world when you’re winning; when you lose, every move is scrutinized and questioned. The same holds true in business. But often, some of the success factors, such as injuries in sports or external market forces in business, are beyond your control. For example, we were unilaterally praised as an ownership group by the media and our fans in 2004 for ending the 86-year “Curse of the Bambino,” but if Dave Roberts’ historic steal of second base in the bottom of the ninth inning in Game 4 of the A.L.C.S. had occurred a split second later and he had been called out instead of safe, our history likely would have been far different. Conversely, had just one or two plays gone differently in either the Red Sox or the Rays games on Sept. 28th last year there would never have been a “September Collapse.” But that’s just the nature of the game. The point is not to dwell on specific highs and lows, but to focus on sustained success over the long term, which I believe we have achieved. That’s why it’s critical to focus on factors you can control. It’s crucial to develop a set of managing principles, adhere to them, and establish a corporate culture that ensures everyone in the organization is executing against common goals. We’ve experienced success when we’ve adhered to that approach, and found that staying focused pays dividends over the long term, while insulating us from marketplace vagaries and external distractions.
Nearly every baseball organization has invested in a new stadium to showcase its product. Yet Fenway Park is celebrating its 100th anniversary, and this ownership team made a bold move to upgrade the facility rather than build a new one. Given the constraints, was this the optimal choice, and how does a business leader attain the vision to know that answer?
Werner: Fenway Park is a Boston jewel and a second home for Red Sox fans. From day one, the preservation of Fenway has been of paramount importance to our ownership group. We made a sacred commitment to the fans and city to preserve and build on all that is good about Fenway. The ballpark is renowned for its architectural and aesthetic charm, and our job is to protect and re-energize it to ensure that our core story is never-ending.
We recently completed a 10-year plan for major improvements that included more seating sections and standing room, wide-open concourses, a reinforced structure, increased food-and-beverage options and improved fan amenities. The addition of seats to the top of the Green Monster is a good example. They made the park even more special, providing fans with a unique vantage point from which to view a game while providing us with an additional revenue stream. In fact, USA Today rated the Monster seats as the best seats in all of Major League Baseball in 2008.
Being in the same division as the New York Yankees is a constant challenge but also a welcome advantage. What changes for you having to address a competitor of that magnitude, as opposed to being in the NL West in San Diego? Does this level of competition make you desire a salary cap in baseball?
Werner: The Yankees have a significant competitive advantage merely by virtue of the market they operate in, the largest in the U.S. That said, our division is one of the toughest in baseball from top to bottom. It’s not just the Yankees we have to contend with – the Rays, the Blue Jays and Orioles all have made a significant investment in player personnel and as a result, have become highly competitive ball clubs.
That said, competition as a whole is as strong as it’s ever been. Major League Baseball is as popular as ever, and the game is incredibly healthy as a result. Take this past off-season. We had four teams commit more than $100 million to a single free agent, all outside of the American League East, including the Angels (Albert Pujols at $240 million), Marlins (Jose Reyes at $106 million), Rangers (Yu Darvish at $111 million) and Tigers (Prince Fielder at $214 million).
With the Padres, we were playing in the 26th-largest market in baseball, so clearly there’s a difference in approach with the Red Sox. That is reflected in the level of commitment the club has made not just to the Major League payroll, but to amateur signing bonuses, to international signings — anything related to the on-field product. We’re going to have the second-highest payroll in baseball this year, and I think our 2012 budget will be the highest budget in Red Sox history. That said, our experience with the Padres taught valuable lessons on how to compete and acquire talent without having the benefit of big budgets, and we’ve been able to apply that here, while also having the flexibility to spend on the players we feel will make the team more competitive.
To remain competitive it’s critical that we invest not only in the Major League club, but also in scouting and our farm system, and that we spend wisely on free agents. There’s just less margin for error as teams like the Dodgers, Angels, Giants and of course the Yankees are engaged in discussions on all the major free agents.
The role of ancillary businesses in sports ownership: Is a cable television outlet a requirement to fuel the financing of any successful sports franchise?
Werner: Baseball is flourishing thanks to cable companies’ desire for live baseball programming, and the fact that rights fees paid by cable television channels are behind the growth in team values. By owning an equity stake in a regional sports network, it allows us to present our product to our fan base, but also receive an additional revenue stream. Fenway Sports Group pioneered this model when we acquired a majority ownership of New England Sports Network (N.E.S.N.). Revenue generated from a regional sports network is predictable and stable and immensely beneficial to any successful sports franchise.
We now televise almost 300 live events each year, including Red Sox and Bruins games. Since 2001, N.E.S.N. has more than doubled the amount of original programming it airs, and it reaches over 4 million homes throughout the six-state New England region, and nationally as N.E.S.N. National on all major satellite providers.
Can these leadership lessons be transferred to the greater world of business?
Werner: Leadership skills are easily transferrable from sport to business, where it is just as complex and competitive. In both sport and business, a strong leader is efficient, goal-oriented, organized, tenacious and possesses the ability to strategize — and perhaps most importantly, he or she must delegate effectively. We’ve been successful in Boston because we’ve been able to attract the right people for the right positions and have given them autonomy to lead and make decisions while providing them with feedback and guidance. We had great success with our manager, who was there for eight years, and our general manager, so we prefer stability.
Our role as owners is not that of the general manager, the manager, or the CEO of the Red Sox. That’s not what we do. We work on strategic elements of all of our businesses, including the Red Sox. We are there if they need us, and we always keep coming up with ideas and questions like, “Why aren’t we doing this?” And so are they, and that’s the key.
Padres’ Tom Garfinkel
Tom Garfinkel, president and chief operating officer of the San Diego Padres, does not have an easy job. Rebuilding is difficult, and working with new ownership, which is about to take over in San Diego, is never easy for a baseball executive. The Padres finished in last place in the fierce N.L. West in 2011, and the team faces tough competition this season. But under Garfinkel’s leadership, the organization has undergone a raft of positive changes. He joined the Padres from the Arizona Diamondbacks in 2009 at age 39, and in the past two years the Padres achieved their highest season-ticket renewal rates and grew attendance for only the second time in franchise history. Garfinkel has also been instrumental in building the Padres brand through extensive philanthropic community relations. With the Diamondbacks and Padres, he has learned about the discipline required to lead a small-market organization to success. He spoke with Korn/Ferry International’s senior vice president and chief marketing officer, Michael Distefano, about his experience.
Let’s start by talking about your journey.
Garfinkel: Well, last week I was in Chicago, and I was reminded that I graduated almost 21 years ago from the University of Colorado and got in a car with a couple of friends and moved to Chicago. I got a job bartending next to Wrigley Field with the hope that by being next to baseball, I might get hired to sell programs there or something. And here I was, 20 years later, coming back and sitting in the owner’s seat as president of the opposing club — and I went to dinner with (Cubs owner) Tom Ricketts the night before. It was just one of those moments, remembering